In a recent conversation I had with a mentee who is still in university, he told me that he was considering dropping out of school to focus on a business ideas he was toying with. I felt that, for his particular situation, this was a bad idea.
If you’re in similar situation, i.e., you’re unsure whether you should drop out of school/quit your current job now, to focus on your business, this post is a gives you a decision tree you can use to come up with the decision for your particular situation that leaves you better off rather than worse off. And the give suggestions for what you should do.
What kind of business do you want to start (or buy)?
There are two broad paths you can take:
A medium or large business
If you can start off with a medium or large business from day one, you should only consider going all in, if and only if:
- You have enough capital:
- People who have been successful in a similar role at a similar company that want to come and work for you. This is easier if you have worked in a similar industry and already have relationships and goodwill with these people.
- Enough money in the bank on day one that is enough to last you until the day you can realistically break even. This money is likely from your savings or some investor. If you don’t have money but have a good paying job, you may want to keep your job a little longer and find a way save money. You also have enough money to pay your own salary.
- You have the equipment your employees need to do their jobs from day one.
- If you have developed a new product/service, it has got to be at least an order of magnitude better or cheaper than those developed by the companies you’re competing with. Another me too product/service or something that is only marginally better is not a good enough reason to leave your job or drop out of school. This is because of the sheer difficulty raising capital or finding customers for a product/service which is less than an order of magnitude better.
- You have product-market-fit.
If you tick all three boxes then you have a good chance of making it in business you should go for it. But most of us are probably going to have to build a small business first before we build a larger one, so let’s talk about your options if you’re starting off with a small business.
Should you start or buy?
because it’s very hard to know how much runway you have (which is how much time it will take to get to break even), you never know if your capital is enough to cover your runway. Plus, add to this that you will never really know for sure if you’re ever get to product-market fit. Buying an already profitable business avoids both these risks so a smarter person will buy Twitter for $44 billion rather than try to build another Twitter with $44 billion.
A small business
Given what you know about small businesses, if the kind of business you’re going to start is a small business, you’re probably taking this route because you don’t have the capital or the revenue to allow you to get additional human resources.
Some changes you are going to notice are:
- Running a business is a multivariate problem so your responsibilities are going to significantly get bigger – in addition to the work that you do (which is most of it), you’re going to suddenly be responsible for paying expenses, keeping customers happy, dealing with suppliers, product management, etc. One thing you’re going to notice too is that you’re going to be able to do any of these as well as they were done in your old job (where you had different people specialising in one job).
- As as result going to end up working additional hours than you did in your last job.
- And because you’re not as product as you would be if you had specialisation, you’re going to be working more hours for less pay than you were getting in the last job.
- You are going to be taking on a tremendous amount of risk – you are just one accident away from getting bankrupt.
if you can get a decent paying or high paying job:
it’s doesn’t make sense to buy or start a small business. Because it’s just another job but worse that the one you have.
You’re probably better off saving to put yourself in a better position to buy
but if you can’t get a decent job:
In this case, it may be a good idea to start or buy a small business and that’s only because you are out of options. Examples of people in this category are:
- an illegal immigrant
- have a criminal record or in some cases a bad credit record
- are skilled in an industry that is governed by a professional body; but have been banned from practising by that professional body
if you’re in university
I’ll assume you’re like most people and your parents sent you to university so you can get a job. And if you’re like most of us, you don’t have much money; you’re probably broke, you are willing to put in the least amount of effort you can put in to just pass. In fact, you’re probably not working to pass, but working to not fail. And you have a lot of time.
If I was in that situation, here is how my decision tree would look like:
- If I’m doing a degree program where I don’t have a good chance to getting a good paying job when I graduate, I would start a small business and start getting some entrepreneurship experience because I’m probably not going to get a good job anyway.
- But if I’m in a degree program (such as computer science) where I have a very high chance of getting a high paying job when I graduate, I would double down on studies rather than start a small business. If you’re doing computer science for example, a job is almost guaranteed. But with the way the best companies screen recent graduates, the students that have the best grades are the ones that have the best chance to fill in the best and highest paying positions at the best companies that are hiring recent graduates.
I would also take up any opportunities to improve soft skills such as writing or public speaking. You can do this by joining a club such as Toastmaters. If you can get a good job that pays well and learn to live on less than you earn while saving the difference, you set yourself up to be able to buy a profitable business in the future.